This is one of several key findings from Standard & Poor’s Fund Services’ alternative strategies – equity sector review covering beta variable, market neutral, and market exposure strategies. S&P Fund Services analyst Jason Patton said:

“Against an uncertain background, particularly in Europe, cash remains king. In a relative sense, alternatives are gaining ground in investors’ allocations, but flows to the sector, if any, are tending to favour managed futures and global macro managers; equity in general is not in favour. Still, our view is that some equity alternatives in the Australian market offer smarter exposure to the asset class.”

Some of the key findings from the sector review:

• The flexibility of the formats covered in our review (relaxation of the long-only constraint, freer use of options) allows skilled managers to protect to the downside while targeting reliable income streams, or remaining exposed to eventual upside participation if and when bull market conditions re-emerge. We continue to scrutinise managers’ use of options and of “the short side”.
• Beta variable managers that we perceive to be “sticking to their knitting” are rated highly—they use the short portfolio strictly defensively, if that is their heritage and skill set. Our review shows that the best managers are displaying a record of delivering downside protection, alternative income streams, and/or non-correlated sources of return that help to better diversify investors’ portfolios in a highly uncertain market.
• We continue to be impressed with equity income as a peer group, finding it to be under-appreciated as a potential core allocation for income-focused investors.
• Some Australian equities-based market-neutral trading strategies continue to punch above their weight as genuine absolute return “alternatives”. These strategies show alpha and, importantly, non-correlation, while avoiding significant draw-downs in negative equity environments and realising the portfolio diversification potential of the format.

19 July 2012

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We first rated the fund as three stars in August 2010 when it was part of the international equities peer group. 

“Investment manager Value Partners Ltd. invests in Asian ex Japan equity markets, blending classic value-oriented bottom-up stock picking with top-down thematic views to temper (or “hedge”) overall market exposure with index futures and cash positioning. However, it is likely to maintain a long bias making the strategy less absolute return-focused and more appropriately characterised as an “actively managed regional exposure” in our view. With the ability to hold up to 20% cash and to short the market via index futures, the fund may offer downside protection when it makes the right macro calls,” said S&P Fund Services analyst Jason Patton. 

The fund’s strengths are its well-resourced and now settled investment team, the recent establishment of a Shanghai office that provides access to mainland China insight and an on-the-ground presence not available to most other equity investment managers, and a promising early track record. 

“Countervailing weaknesses in our view are a relative lack of diversity in the decision-making culture, and slightly higher than average fee levels in its new peer context,” said Mr Patton.

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